Giving reasons, state whether the following statements are true or false:
Both depreciation and devaluation of domestic currency have the same meaning.
Both depreciation and devaluation of domestic currency have the same meaning.
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False.Explanation:
Both depreciation and devaluation of domestic currency do not have the same meaning because under the fixed exchange rate system the government's deliberate raising of the price of foreign currency in terms of domestic currency is called 'devaluation of domestic currency, whereas under the flexible exchange rate system the change in foreign exchange rate in terms of domestic currency is determined by the forces of demand and supply of foreign exchange in the foreign exchange market. This phenomenon is known as 'depreciation’ of Indian currency.
Both depreciation and devaluation of domestic currency do not have the same meaning because under the fixed exchange rate system the government's deliberate raising of the price of foreign currency in terms of domestic currency is called 'devaluation of domestic currency, whereas under the flexible exchange rate system the change in foreign exchange rate in terms of domestic currency is determined by the forces of demand and supply of foreign exchange in the foreign exchange market. This phenomenon is known as 'depreciation’ of Indian currency.
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